Question

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
A) 0.22.
B) 0.67.
C) 1.33.
D) 1.50.

Answer 1

Answer:

The correct answer is option B.

Explanation:

The price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month.

Price elasticity of demand

= $\frac{\frac{Q2-Q1}{\frac{Q2+Q1}{2}}}{\frac{P2-P1}{\frac{P2+P1}{2}}}$

= $\frac{\frac{80-100}{\frac{80+100}{2}}}{\frac{7-5}{\frac{7+5}{2}}}$

= $\frac{\frac{-20}{90}}{\frac{2}{6}}$

= $\frac{-0.222}{0.333}$

= -0.666 or 0.67